Modi's speech: much ado about little

New Delhi, Jan. 3 -- Prime Minister Narendra Modi rang in the new year in trademark fashion. His speech on 31 December was a grab-bag of sops leavened with oratorical flourish. Unfortunately, lost in the mix was its most anticipated element-concrete information on the currency-swap initiative.
To be sure, a new year's eve address to the nation is not an occasion for long-winded policy prescriptions. And Modi did well to focus on the currency swap's original anti-corruption logic rather than the later pivot to digitization of the economy. But his speech suffered from three problems: the lack of currency-swap information, rhetorical sleight of hand concerning the sops he announced, and a missed opportunity to address the original sin of election finance in meaningful fashion.
Regarding the first of these, for all that Modi claimed that "the Indian banking system has never received such a large amount of money, in such a short time", there are still no figures in the public domain to back this up. Neither the government nor the Reserve Bank of India has released updated information about either the quantum of deposits or an estimation of how much of the deposits are black money. It should be noted here that finance minister Arun Jaitley had earlier admitted a lack of certainty about the latter. A lack of accurate data makes assessment of policy and formulation of future policy far more difficult.
Nor, crucially, did the Prime Minister offer any guidance on when the cash crunch can be expected to end. The situation is easing, certainly. But in acknowledging the difficulties the public has faced without giving any indication of when the first step in resolving those difficulties will be completed, he misstepped.
As for the sops Modi announced-a 60-day interest waiver on farm loans taken from cooperative banks, interest subventions on small-ticket home loans under Pradhan Mantri Awas Yojana (PMAY) and Rs6,000 deposited in the bank accounts of pregnant women across the country, among them-were aimed at the rural and poor populations. The populism wasn't unexpected, in content if not in timing; there has been speculation that the forthcoming budget will be a populist one to offset the political and economic downsides of the currency swap.
However, at least some of the sops fail to withstand closer scrutiny. Take the home loans' interest subvention. the PMAY was launched in June 2015 to implement the government's Housing for All by 2022 mission. The results thus far have been uninspiring. As against an estimated housing shortage of 20 million units, only a little over 19,000 houses had been built across all states under the scheme until July 2016. Although over 700,000 houses had received approval, work was progressing on less than 15% of them. And only 7,180 households had received the benefits of funding under PMAY's credit-linked subsidy scheme. Throwing more taxpayer money at a scheme with such operational bottlenecks makes little sense. Likewise, the grant for pregnant women is already incorporated into the National Food Security Act, 2013; the problem has again been one of poor implementation.
Lastly, Modi acknowledged that it was time "that all political leaders and parties respect the feelings of the nation's honest citizens, and understand the anger of the people" regarding the corruption undergirding the country's political system. So far, so good. He followed it up by asking all political parties "to come together in prioritizing transparency, and take firm steps to free politics of black money and corruption". Even better. Hopefully, this is a signal that his government means to take concrete steps in this regard.
But the one substantive measure he did announce in this context-pushing for simultaneous conduct of state and national elections-is also likely to be the most controversial and difficult to implement. More, it is an implicit admission that political corruption cannot be tackled head-on; the best that can be done is to reduce the opportunities for it. This is not good enough. Other reforms that address electoral finance directly such as making disclosure of all contributions mandatory would have been more appropriate.
Narendra Modi's government conceived of currency swap as a one-time tax on black money. Any forecast in the context of an unprecedented situation must be taken with caution. That said, it may well be that the initiative turns out to be successful in its original aim-and despite various dire predictions, an economic collapse is unlikely. But by persisting with a lack of transparency and failing to signal follow-up measures to address the creation of future black money-after positioning the initiative not simply as a one-time measure but as part of a broader war on corruption as Modi did in this speech-the government is doing an inadequate job of managing perceptions and expectations. When it comes to tackling corruption, those matter too.